MF Global, Goldman, Wells Fargo, JPMorgan, S&P in Court News

By Elizabeth Amon -
Mar 26, 2012

Jon S. Corzine, MF Global Holding
Ltd.’s former chief executive officer, may face potential legal
liability if investigators show he knew customer money might be
used when he ordered $200 million transferred to a U.K. account
as his brokerage neared collapse, Bloomberg News’ Linda Sandler
and Phil Mattingly report that former prosecutors said.

The ex-Goldman Sachs Group Inc. (GS) co-chairman gave “direct
instructions” to move money from a U.S. account to meet an
overdraft with JPMorgan Chase & Co. (JPM) just days before MF Global’s
bankruptcy, according to a memo by congressional investigators.
Such accounts may have contained assets belonging to both
customers and MF Global.

The U.S. Department of Justice and federal regulators are
investigating the firm’s Oct. 31 collapse. Corzine, a Democrat
from New Jersey who served in the U.S. Senate and as governor,
told Congress last year he never directed customer funds be used
improperly. Though showing he deliberately used customer money
would be the key to a criminal case, former prosecutors said
Corzine, who hasn’t been charged with any wrongdoing, could be
deemed liable in civil cases for misuse of customer money simply
for ordering the hole in JPMorgan’s account plugged, if it turns
out customer funds were used.

“It’s not whether he specified,” John Moscow, a former
chief prosecutor in the office of Manhattan District Attorney
Robert Morgenthau, said yesterday in an interview. “The
economics of the situation were he was out of money. The bottom
line is, he was taking a risk with somebody else’s money.”

In a casino, said Moscow, now with Baker Hostetler LLP in
New York, “if I put your money on the table, I’ve committed
larceny as soon as I expose it to risk.”

Andrew Levander, a lawyer for Corzine, didn’t return a call
or e-mail after normal business hours seeking comment on the
probe. A congressional hearing on the issue is set for this
week.

MF Global and its brokerage sought Chapter 11 bankruptcy
protection in New York after a $6.3 billion bet on the bonds of
some of Europe’s most indebted nations prompted regulator
concerns and a credit-rating downgrade. Corzine, 65, quit MF
Global Nov. 4. The bankruptcy trustee overseeing the liquidation
of the company’s brokerage subsidiary has estimated a $1.6
billion shortfall between customer claims and assets available.

Edith O’Brien, a treasurer for New York-based MF Global,
said in an e-mail quoted in the Congressional memo that the $200
million transfer was “Per JC’s direct instructions,” according
to a copy of the memo obtained by Bloomberg News.

The e-mail, dated Oct. 28, was sent three days before the
company collapsed, according to the document. The account may
have contained both client and company funds, the memo states.

The brokerage case is Securities Investor Protection Corp.
v. MF Global Inc., 11-02790, U.S. District Court, Southern
District of New York; The parent’s bankruptcy case is MF Global
Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern
District of New York (Manhattan).

For more, click here.

Lawsuits/Pre-Trial

Goldman Sachs’s ‘Fabulous Fab’ in Rwanda While Awaiting Trial

Fabrice Tourre, the Goldman Sachs Group Inc. executive
director who called himself “fabulous Fab,” has done volunteer
work in Rwanda and started a U.S. doctorate program while
awaiting trial in a government fraud suit his bank settled for
$550 million.

The Securities and Exchange Commission alleged in a 2010
complaint that Goldman Sachs and Tourre, 33, who is on unpaid
leave, defrauded investors in a collateralized debt obligation
known as Abacus 2007-AC1.

The regulator identified Tourre as a “resident of Kigali,
Rwanda,” in court papers filed March 21 in Manhattan federal
court. Tourre had been in the African nation’s capital working
for a non-governmental organization before beginning his studies
at the University of Chicago, according to a person familiar
with his travels who declined to be identified because the
matter isn’t public.

“Tourre is a U.S. resident studying for a Ph.D. in
economics at the University of Chicago,” his lawyer, Pamela
Rogers Chepiga, said in a statement March 21. Steve Koppes, a
university spokesman, said Tourre has been enrolled in the
program since September.

New York-based Goldman Sachs agreed in July 2010 to pay
$550 million, the largest penalty ever assessed by the agency
against a Wall Street firm, to settle allegations against it.

Tourre remains a defendant in the case. U.S. District Judge
Barbara Jones in Manhattan last year narrowed some of the claims
against him while allowing the case to go forward.

The reference to Kigali came in papers filed by the SEC
seeking to question Jorg Zimmerman, a former employee of IKB
Deutsche Industriebank AG (IKB) in Germany. The SEC claimed Tourre
spoke with Zimmerman to encourage his bank to invest in the
securities. Tourre has denied any wrongdoing.

The case is SEC v. Tourre, 10-cv-03229, U.S. District
Court, Southern District of New York (Manhattan).

For more, click here.

Wells Fargo Should Be Forced to Comply With Subpoenas, SEC Says

Wells Fargo & Co. (WFC) failed to hand over documents demanded in
U.S. subpoenas and should be forced to cooperate with a probe
into its sale of almost $60 billion in residential mortgage-backed securities, regulators said.

The Securities and Exchange Commission asked a federal
judge to compel the bank, the largest U.S. home lender, to
deliver documents it agreed to produce under subpoenas dating
from September, the agency said March 23 in a statement. The SEC
said it’s looking into possible fraud by the San Francisco-based
company and hasn’t concluded that anyone broke the law.

Almost four years after mounting mortgage defaults prompted
unprecedented government bailouts of the financial system,
regulators are still examining how banks packaged and sold home
loans to investors. The SEC is looking for evidence that firms
failed to disclose underlying credit weaknesses in mortgage
pools and delinquencies, and has also told Goldman Sachs Group
Inc. and JPMorgan Chase & Co. that they may face civil claims.

The agency’s request, if granted, would give Wells Fargo 14
days to hand over 1,365 e-mails and attachments it has withheld
from the SEC, according to a court filing. The bank said in a
statement that enforcement action is unwarranted and that it
will defend itself in court.

The watchdog is examining whether Wells Fargo
misrepresented or omitted facts in offerings from September 2006
to early 2008, according to the statement. While the bank
reviewed a sampling of loans and excluded those that failed to
meet its standards, Wells Fargo may not have taken steps to
address flaws in the remainder of the pool, the agency said.

Investigators are seeking information on the bank’s
underwriting guidelines and on due diligence, according to the
statement. The agency filed its request in federal court in San
Francisco. Marc Fagel, the head of the SEC’s office in that
city, declined to comment on the request.

“Wells Fargo believes the subpoena enforcement action is
inappropriate and unwarranted and will vigorously defend itself
in court,” Mary Eshet, a Wells Fargo spokeswoman, said in an e-mailed statement. The bank has cooperated with the agency and
believed it had an understanding on the requested documents,
which was violated by the March 23 filing, she said.

The case is Securities and Exchange Commission v. Wells
Fargo & Co., 12-80087, U.S. District Court, Northern District of
California (San Francisco).

For more, click here.

CBOE, McGraw Hill Ask Court to Enforce ISE Option Trade Ban

CBOE Holdings Inc. (CBOE) and McGraw-Hill Cos. asked an Illinois
court to enforce a 2010 order barring International Securities
Exchange LLC from providing a forum for trading of S&P 500-based
options.

Judge William O. Maki in Chicago barred ISE from featuring
the listings in July 2010, ruling that the CBOE-owned Chicago
Board Options Exchange holds an exclusive license to offer
options based on the S&P 500. The index is a licensed product of
McGraw-Hill’s Standard & Poor’s Financial Services LLC.

ISE on March 13 announced plans to list options for the Max
SPY index, which it called “a new proprietary index that
represents 10 times the value” of the exchange-traded fund
based on the S&P 500.

“ISE’s options actually are structured to be options on
the S&P 500,” McGraw-Hill and CBOE said in a statement March 23
announcing the court filing. “CBOE and S&P brought this action
in order prevent this violation of both CBOE’s license rights in
S&P 500 index options and S&P’s proprietary rights.”

In their court papers, CBOE and McGraw-Hill said they want
the court to issue an order barring ISE from violating the
previous injunction or declare that it would violate that
injunction for ISE to list or provide an exchange market for the
trading of the options or cause the Options Clearing Corporation
to settle them.

Molly McGregor, a spokeswoman for New York-based ISE, said
the company doesn’t comment on pending litigation.

The injunction request was assigned to Cook County Judge
Franklin Valderrama. Lawyers for the CBOE and McGraw-Hill on
April 5 will ask for the matter to be transferred back to Maki,
according to court papers they provided to Bloomberg News.

Depfa, Pisa Swaps Feud Needs Trial in Italy and U.K., Judge Says

A London judge ruled that a dispute between Depfa Bank PLC,
Dexia SA and the Italian province of Pisa over a swaps deal
needs separate trials in Italy and the U.K.

While the banks had asked the judge to refer the case to a
European Court for a final ruling on jurisdiction, Judge Nigel
Teare refused the request, saying proceedings in the two
countries were different.

The case is one of several being fought over derivatives
used to hedge interest rates sold to European regional
governments by investment banks that turned out to be far more
costly than predicted.

Dexia and Depfa filed a lawsuit in London in 2009 seeking a
ruling that the swaps are valid. Pisa wants an Italian court to
approve its decision to annul them, according to Teare’s
judgment.

“The proceedings are different and the administrative
matters must be heard in Italy,” Pisa lawyer Germana Lo Iacono-Smith said in a phone interview.

George, 43, raised more than $2 million for his company,
the George Group, after telling investors his real-estate
development portfolio was worth $500 million, according to a
four-count wire-fraud indictment in federal court in Newark, New
Jersey.

George, a Newark resident, told prospective investors that
their money would fund the George Group’s development of real
estate projects in New Jersey and Connecticut, prosecutors
charged.

“Instead of using investments to fund real estate
development projects as promised, George used the money from new
investors to pay existing investors in Ponzi scheme fashion,”
U.S. Attorney Paul Fishman said in a statement.

George faces as many as 20 years in prison on each count.
His attorney, Thomas Ashley, didn’t immediately return a call
seeking comment on the indictment.

George was arrested last September on a Federal Bureau of
Investigation complaint charging him with one count of wire
fraud. He was released on $250,000 bail.

After his arrest, Ashley said: “He maintains his innocence
and will plead not guilty. All these charges are clearly
defensible.”

The case is U.S. v. George, 11-mag-03197, U.S. District
Court, District of New Jersey (Newark).

For the latest lawsuits news, click here.

New Suits

Deloitte & Touche Sued in New York Over WG Trading Fraud

Deloitte & Touche LLP, one of the so-called Big Four
accounting firms, was sued by a pension fund over WG Trading
Co., the company allegedly used in a Ponzi scheme by former
managers Paul Greenwood and Steven Walsh.

The Iowa Public Employees’ Retirement System suffered
millions of dollars in losses as a result of the scheme,
according to the lawsuit, which was filed in federal court in
New York March 22.

Deloitte & Touche served as the auditor of a company
controlled by the operators of the scheme and “aided and
abetted” it by issuing “unqualified and/or ‘clean’” audit
reports that the pension fund relied on while purchasing
securities that were issued as part of the scheme, according to
the complaint.

Deloitte “acted in willful blindness of the scheme, and
its auditing practices were so deficient that the audits
amounted to no audit at all, or an egregious refusal to see the
obvious, or investigate the doubtful, and the professional
judgments which it made were such that no reasonable auditor
would have made the same decisions if confronted with the same
facts,” lawyers for the pension fund said in the complaint.

The claims are “ill conceived” and without merit,
Jonathan Gandal, a spokesman for Deloitte LLP, said in an e-mail. Deloitte & Touche, based in New York, is a subsidiary of
Deloitte LLP, the U.S. arm of U.K.-based Deloitte Touche
Tohmatsu Ltd., according to its website.

“Deloitte & Touche LLP did not audit the financial
statements of the Westridge entities at which the fraud
allegedly occurred,” Gandal said. “Rather, Deloitte audited
the financial statements of a separate entity, WG Trading
Company Limited Partnership, through 2007, and there is no
information which calls into question either the correctness of
those financial statements or Deloitte’s full compliance with
professional standards.”

Any wrongdoing is “solely attributable” to the principals
of the Westridge entities, one of whom has already pleaded
guilty to related charges, Gandal said.

Greenwood and Walsh were indicted in July 2009 on charges
that they conspired to defraud investors of $554 million. The
U.S. said the scheme stretched from 1996 until the men were
arrested in February 2009. Greenwood pleaded guilty to six
charges, including conspiracy and securities fraud. Walsh has
pleaded not guilty.

The case is Iowa Public Employees’ Retirement System v.
Deloitte & Touche LLP, 12-cv-2136, U.S. District Court, Southern
District of New York (Manhattan).

Shell Sued in U.K. Over ‘Massive’ Oil Spills in Nigeria in 2008

Royal Dutch Shell Plc (RDSA), Europe’s largest oil company, was
sued in Britain by 11,000 Nigerians who say their land, rivers
and forests were spoiled by two “massive” spills in the Niger
River delta in 2008.

The lawsuit was filed in London March 23 after talks
between Shell and residents of the coastal Bodo community failed
to produce a deal, the group’s law firm Leigh Day & Co. said in
a statement. While Shell admits liability for the leaks, it
claims local people spilled most of the oil.

“We had thought that the invitation to sit around the
table meant that Shell was taking the impact of the two oil
spills seriously,” the lawyer for the Nigerians, Martyn Day,
said in the statement. “We are now left with the only option of
taking the claims through the U.K. courts to obtain justice.”

The lawsuit, which says 500,000 barrels of oil leaked,
comes two months after Nigerian President Goodluck Jonathan said
he would seek compensation from Shell, based in The Hague, for
another incident in which nearly 40,000 barrels spilled at the
Bonga field in the country’s worst offshore spill in more than a
decade.

Before and after the two leaks, “there were a number of
other spills as the result of illegal theft of oil and sabotage
that resulted in significantly higher amounts of oil being
spilled,” Jonathan French, a Shell spokesman in London, said
March 23 in a phone interview. Local people have the “misguided
belief that more oil spilled equals more compensation.”

For more, click here.

Wells Fargo Sues Medical Development Over $30 Million Loan

Wells Fargo & Co., the fourth-largest U.S. bank by assets,
sued prison-service provider Medical Development International
Ltd. in Delaware Chancery Court seeking to recover $30 million
in loans.

Wells Fargo contends Medical Development of Ponte Vedra,
Florida, has been in default of the loans “for quite some
time,” and asks a judge to appoint a receiver.

The company and affiliates have “also engaged in a series
of self-dealing transactions including, among other things, so-called ‘loans’ to executives” for a “working farm,” a
biographical screenplay and payments for “a Tesla Roadster,”
lawyers for San Francisco-based Wells Fargo said in court papers
filed March 23 in Wilmington.

Medical Development, with $55.3 million in assets and $74.9
million in liabilities as of Dec. 31, is headed by Chief
Executive Officer Richard Willich and provides medical
contracting, management and administration for federal prisons,
according to the complaint.

Medical Development lawyer Tracy Wenzel said officials are
going to review the case and had no immediate comment.

For the latest new suits news, click here. For copies of recent
civil complaints, click here.

Trials/Appeals

JPMorgan Sued by Currency Trader Over $3 Million Decimal Point

JPMorgan Chase & Co. is being sued by a trader who says he
accepted a contract from the investment bank because a
typographical error made him believe he would be paid 10 times
what was actually offered.

Kai Herbert, a Switzerland-based currency trader, is suing
JPMorgan for about 580,000 pounds ($920,000), his lawyers said
at a trial in London this week. The original contract said
Herbert’s annual pay would be 24 million rand ($3.1 million).
JPMorgan blamed the mistake on a typographical error and said
the figure should have been 2.4 million rand, according to court
documents.

“That must have been the moment your heart sank,” Judge
Henry Globe said at the trial this week, referring to when
Herbert discovered the mistake. Herbert resigned from UBS AG (UBSN) in
June 2010 following the offer from JPMorgan to relocate to
Johannesburg. Herbert didn’t report for work after discovering
the discrepancy and JPMorgan rescinded the employment offer in
December 2010.

He has been unemployed since, other than eight months at
Credit Suisse Group AG (CSGN) where he was fired in a round of layoffs
in November. Banks globally have cut about 196,000 jobs since
the start of 2011, according to data compiled by Bloomberg.

“How can you possibly suggest that they would pay you so
much money for an executive director level job?” Charles
Ciumei, a lawyer for JPMorgan, asked during Herbert’s cross-examination. The bank said Herbert could have mitigated his lost
earnings by taking the position at the New York-based bank.

Standard & Poor’s ignored warnings that notes sold to
Australian towns didn’t deserve a AAA rating and used faulty
data to support its decision, a lawyer said.

“It was a simple case of GiGo - garbage in, garbage out,”
said Noel Hudley, lawyer for a dozen Australian towns seeking to
recoup investments that were wiped out when the notes’ value
collapsed during the 2008 global financial crisis.

The towns claim they lost A$15 million ($15.6 million) of
A$16 million invested in the Community Income Constant
Proportion Debt Obligation Notes. They were unwound less than
two years after the towns bought them as credit spreads
increased and their cash value was exhausted, and the towns
accused S&P of giving the notes the highest rating on pressure
from a bank.

An S&P committee determining the rating on the notes had 31
results from tests run by analysts, with 68 percent of those
findings not supporting a AAA rating, Hudley said March 23, on
the first day of closing statements before Justice Jayne Jagot
in Federal Court in Sydney.

The ratings company didn’t follow procedures that are a
standard in the industry in developing the rating, Hudley said,
citing evidence given by experts during the trial.

“You are the wuss for bending over in front of bankers and
taking it,” Sebastian Venus, who had prepared an internal model
for the notes at S&P, wrote to Derek Ding, an analyst
responsible for rating the note, according to e-mail transcripts
presented in court documents. “You rate something AAA, when
it’s really A-?”

The plaintiffs cited “selectively” from the hundreds of
documents that were submitted, S&P said.

“Those e-mail exchanges also evidence the fact that S&P
did not simply rubber stamp ABN’s opinion,” the company said.
“Conflicting views are to be expected in the context of any
serious process of analysis and consideration.”

The closing statements from the towns, LGFS, ABN Amro Bank
and S&P are scheduled to take at least until March 30.

Verdicts/Settlements

Lockheed Martin Corp. (LMT), the biggest U.S. defense contractor,
will pay $15.9 million to settle allegations it mischarged the
federal government for tools used on military aircraft.

The settlement arose from a pricing fraud by a Lockheed
subcontractor that began 14 years ago, according to the Justice
Department. Lockheed Martin passed the excessive costs on to the
government in violation of the False Claims Act, the U.S. said
in a statement.

“It is troubling that a large defense contractor with
long-established contractual ties with the United States failed
to undertake appropriate measures to ensure the integrity and
validity of the costs it submitted to the United States,”
Stuart F. Delery, acting assistant attorney general for the
Justice Department’s civil division, said in the March 23
statement.

The settlement resolves two whistle-blower cases filed in
federal court in Dallas. The whistle-blowers will receive $2
million of the proceeds, according to the Justice Department.

Joe Stout, a spokesman for Bethesda, Maryland-based
Lockheed Martin, said the company cooperated with the
government’s investigation into its tool supplier that led to
the conviction of the subcontractor’s president.

The case is U.S. ex rel. Becker v. Tools & Metals Inc.,
05-00627, U.S. District Court, Northern District of Texas
(Dallas).

For the latest verdict and settlement news, click here.

Court News

U.S. Court of Appeals Appoints Two New Bankruptcy Judges

Chief Judge Dennis Jacobs of the United States Court of
Appeals for the Second Circuit announced the appointment of
Nancy Hershey Lord, formerly of the New York State Office of the
Attorney General, as a United States Bankruptcy Judge for the
Eastern District of New York. Lord’s position began on Feb. 29,
according to a statement from the court March 21.

The Court also appointed Paul R. Warren, former Clerk of
Court for the Western District of New York, as a United States
Bankruptcy Judge for the Western District of New York. Warren
began on March 15, the court said in a statement March 21.

To contact the reporter on this story:
Elizabeth Amon in Brooklyn, New York, at
eamon2@bloomberg.net.